Disputes over the withholding tax directive, which proposes a minimum withholding tax on non-resident savings, have soured relations between the UK and other EU countries.

Other member countries say the directive is needed to cut down on tax evasion.

However, paymaster general Dawn Primarolo will today put forward proposals today for a system of automatic exchange of information to tackle evasion. This would involve routine disclosure of information from payers of interest to their domestic tax authority, which would be passed on to other tax authorities.